Happy 20th, Gas Tax!

Fawn Johnson
October 1, 2013

On Oct. 1, the 18.4 cent-per-gallon federal gas tax is 20 years old. And it is likely to remain at that level until it is old enough to drink. The current gas tax rate is not nearly enough to cover the cost of maintaining the roads and bridges over the next year, or 10 years for that matter. The Congressional Budget Office projects that Congress will need to provide almost $13 billion next year in funds from the general treasury to the highway trust fund. The fund, which relies on the gas tax, will need another $14 billion in 2015.

It's not that policymakers don't have good ideas. They actually have proffered quite sophisticated ones to change the way that surface transportation is funded to ensure extra general taxpayer dollars aren't needed. They just can't get past the political hurdles. Sen. Barbara Boxer, D-Calif., last week showed just how fed up she is with this debate when she proposed eliminating the gas tax entirely in favor of a fee paid by oil wholesalers. That's a popular idea among Democrats, but it would never fly with the business community or with Republicans. Most policy experts would love to implement a user fee based on the number of miles that a user's automobile drives on a road rather than the amount of gas he or she buys. But that, too, is complicated by questions about privacy and how to set fees for heavier commercial vehicles, which are harder on roads.

Last week, the Institute on Taxation and Economic Policy issued a report stating that the shortfalls in the highway trust fund could have been avoided for all these years if the 1993 federal gas tax had been indexed to inflation. Now, the same nonpartisan group proposes that the gas tax be indexed to both inflation and the growth in the cost of concrete and asphalt. ITEP argues that while fuel efficient cars have certainly reduced the money going into the highway trust fund over the last 40 years, construction costs have increased by 335 percent since 1973. "The extremely poor design of the gas tax has left it unprepared to deal with the medium- and long-term effects of even normal levels of growth in construction costs," the report said.

What is the impact of an unchanging gas tax after 20 years? Should we replace it with a wholesale fuel tax, as Boxer is proposing? Why or why not? Should we index it to inflation? What about ITEP's proposal of including construction costs in an indexing formula? Are those just stop-gap ways to fund surface transportation while we evolve (slowly) toward a vehicle-miles-traveled user fee? Or is indexing the gas tax an answer in itself? What is the most realistic scenario for the highway trust fund over the next year?